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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 4 Company Share Option Plan (CSOP): Eligibility of individuals to participate: The "no material interest" requirement: Appropriate percentage

Where a trust satisfies the conditions in ETASSUM42400, and the beneficiary (and/or his other associates) does not have a material interest in his own right, the trustees of the employee benefit trust are not to be considered his associates. Instead an appropriate percentage of the interests in the ordinary share capital held by the trustees are to be attributed, for material interest purposes, to the beneficiary concerned.

The appropriate percentage is computed by a formula which compares:

  • the average annual dividends received by the trustees from their ordinary shares in the 3 year period preceding the date they distributed benefits to the beneficiary,
  • with the benefits received by the beneficiary in the previous 12  months.

The appropriate percentage of the trustees’ shareholding to be attributed to an individual beneficiary is computed on each occasion that the employee concerned receives a benefit from the trust. If the appropriate percentage, when added to his own interests, would give him a material interest in the ordinary share capital of a close company on that day, he will be unable to participate in an a Schedule 4 CSOP scheme in the subsequent 12 months.

The appropriate percentage of the trustees’ shares which are to be attributed to the beneficiary is A x 100 over B where:                     

      A. is the total of the payments received by the beneficiary (and/or his associates) from the trustees on that day and in the previous 12 months (or, if smaller, the total dividends received by the trustees in respect of their ordinary shares in the previous 3 years), and

      B. is the total dividends received by the trustees in respect of their ordinary shares in the previous 3 years, divided by the number of years in the previous 3 years in which the trustees received such dividends,

(Section 552-553 ITEPA).